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Auto Bailout, China and Japan

Published on December 22, 2008

Auto Bailout, China and Japan

December 22, 2008

The news is not getting better, rather gloomier day after day (which is BTW also one of the contrarian indicator of bottoming markets). According to Wall Street Journal, investors pulled out record amounts $72 billion from stock funds overall in October alone.

One of the hallmarks of the long market downturns in the 1930s and the 1970s has returned. Rank-and-file investors are losing faith in stocks. In the grinding bear markets of the past, huge stock losses left individual investors feeling burned. Failures of once-trusted firms and institutions further sapped their confidence. Many disenchanted investors stayed away from the stock market, holding back gains for a decade or more. Today’s investors, too, are surveying a stock-market collapse and a wave of Wall Street failures and scandals.

Alongside housing companies and retailers Auto industry is also suffering badly. GM and Ford are not alone in that battle. Toyota Motor Corp (TM) forecasts a first-ever annual operating loss, blaming a relentless sales slide and a crippling rise in the yen in what it said was an emergency unprecedented in its 70-year history. Tata Motors (TTM), the Indian owner of Jaguar Land Rover, has agreed to inject “tens of millions” of pounds into the British car company to prevent an immediate cash flow crisis, while the government continues to consider the case for a taxpayer-funded bail-out.

China is trying very hard to reduce the extent of deflation. Its Fed equivalent authority cut interest rates for the fifth time in three months to support the world’s fourth-biggest economy after trade growth collapsed because of recessions in the U.S., Europe and Japan. This Christmas, Chinese Toy Industry is having one of the worst impact having increased only 3.7% , 16.7% lower vs comparable period last year.

World’s 2nd largest economy is experiencing deepening crisis. Japan’s exports plunged the most on record in November as global demand for cars and electronics collapsed, signaling more factory shutdowns and job cuts. Exports fell 26.7 percent from a year earlier. That was more than the 22.3 percent decline estimated by economists and the sharpest since comparable data were made available in 1980.

Just a few months ago, OIL/Russia was flying high, the confidence was rock solid and folks were talking Oil at $200/barrel, oops, Russian oligarchs are lining up for $78 billion of Kremlin loans to survive the credit squeeze, handing Prime Minister Vladimir Putin the opportunity to increase government control of the nation’s biggest companies.

Even the residential property market’s woos are not yet done, now U.S. Big property developers are seeking their Own Bailout and are asking to be included in a new $200 billion loan program as a surge in commercial mortgages comes due. For commercial real estate market outlook, download the report here.

My short term indicators have triggered a short term sell, but markets have been remarkably stable amidst all the gloomy news from around the world.

Trade Carefully, Trade Profitably, OP

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